For example, the banks are now entering into "liquidity swaps" with
one another, whereby they exchange illiquid assets that can't be used
for collateral for assets that can.

And in so doing, they're tying Europe's financial system even tighter
together at the very moment that the crisis seems to be coming to a
head.

Specifically, traditional sources of bank funding in Europe, such as
institutional investors and other banks, are getting cautious as fears
grow about the need for sovereign debt restructurings. As liquidity
dries up, the only reliable source of funding is often the ECB.

But the ECB only accepts certain types of assets as collateral for loans, and some banks are running out of those assets.